BA owner IAG revisits growth plans amid Brexit uncertainty

British Airways has put a brave face on Brexit but admitted that it will be eyeing future capacity after taking a currency hit in the first half.

BA owner IAG is revisiting plans for growth amid Brexit turbulence. Picture: Getty Images
BA owner IAG is revisiting plans for growth amid Brexit turbulence. Picture: Getty Images

A weak pound triggered by the 23 June vote to leave the European Union, terror attacks and air traffic control strikes took their toll on parent group IAG in the first six months of the year.

Results released yesterday revealed a currency hit of €148 million (£124.4m) in the second quarter for the airline giant, which also owns Aer Lingus and Iberia and was forced to issue a profit alert last month following the referendum result.

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IAG chief executive Willie Walsh said yesterday: “Our performance this quarter saw a negative currency impact of €148m, primarily due to the weak pound. Numerous external factors affected our airlines, including the impact of terrorism, uncertainty around the UK’s EU referendum and Spain’s political situation.

“This led to a softer-than-expected trading environment, especially in June. In addition, the airlines’ operations have been considerably disrupted by 22 air traffic control strikes in Europe so far this year. This has impacted our passenger revenues.”

The group said it had reduced its planned capacity growth for the second half of the year, adding that it has its 2017 capacity growth and capital expenditure “under review”.

Despite the considerable headwinds, IAG reported a 4.1 per cent increase in total revenues for the first half to €10.8 billion (£9.1bn) while operating profit before exceptional items rose 27.9 per cent to €710m (£601.1m).

Passenger unit revenue for the second quarter was down 10.2 per cent and at constant currency fell by 6.2 per cent.

The group, which reports in euros but generates about a third of its revenues from the UK, said negative currency effects were likely to impact results for the third-quarter, typically the most profitable time of the year thanks to the European summer holiday season.

Terror attacks in Europe and a failed coup in Turkey have hit demand for travel, prompting rival carriers EasyJet, Lufthansa and Air France-KLM to caution over the potential impact of political upheaval and security concerns.

Recent surveys have pointed to a slump in consumer confidence since the Brexit vote, while companies are reviewing investment plans and headcounts.

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Walsh added: “It’s unclear when UK corporates will regain confidence in terms of travelling and doing business.

“It will have to happen… whether that’s later this year or early next year we’ll have to wait and see.”

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “Despite terrorist attacks and strikes, IAG seems to be dealing well with the challenging backdrop.

“Increased passenger numbers are making up for falling air fares, while the group is starting to make headway on cutting costs.”